Strategies to Handle Student Loan Debt in 2020

It’s hard to find a silver lining during COVID-19, but if you’re repaying student loans, there might be some good news. As of 2020, the average graduate has $29,900 in student loan debt. That’s a lot of money, and a huge commitment for young adults who have recently completed their schooling.

If you received a government loan while you were a student, you are most likely receiving relief from the government. The Department of Education has set interest to 0% for the remainder of 2020 and suspended all loan repayments. This act has even been extended to defaulted loans, where collections have stopped.

Anyone impacted by this relief effort is given an opportunity to benefit. Whether or not your employment has been impacted by COVID-19, this is an opportunity to reevaluate your repayment strategy. Any type of federal loan flexibility it uncharacteristic, but making the best of the opportunity can work in your favor years down the road.

If You Can Make Repayments

Pay! Pay! Pay!

If you can continue making payments, now is a great time to chip away at those federal student loans. They’re not collecting interest and you’re not forced to make repayments. This means you can reduce the amount you owe so you’ll be charged less interest when repayment resumes. Your interest rates won’t change, but your principle will decrease.

As of now, there is no interest accrual until December 31, 2020. Use this to your advantage and continue making your monthly payments. If you’ve saved any money thanks to COVID, apply these additional savings toward your loan repayments. Working from home has given many people opportunities to save, but savings shouldn’t be used for leisure when you have debt.

Remember, every dollar spent repaying your loans today could be $1.50 you don’t have to pay later. When you repay your loans before they collect interest, you take bigger steps toward the end goal. Of course, this goal is being entirely debt free, and interest gives you more debt to pay.

I wouldn’t necessarily encourage you to blow all of your savings to obliterate your students loans. If you can comfortably do this, now would be a great time. However, COVID-19 has put us all in a position of uncertainty. You need to have some savings available in case you lose your job or incur an unexpected expense. If you do dip into your savings to further repay your loan, it will benefit you longterm. You just need to remain prepared for some level of risk during this time.

If Repayment is a Concern

The current loan forbearance plan is designed to help people in this position. Many people have seen their income lost or reduced, and student loan payments aren’t realistic without secure employment. If you’re in a position where you can’t repay loans, embrace these federal loan changes.

During this time, you can make repayments if you elect. Even if it is you only make one or two payments for the remainder of 2020, that’s fine. You can also make payments in amounts lower than your standard monthly payment, as there really is no minimum during the forbearance window.

Of course, if you’re really concerned about your money you don’t have to make any payments. This is the reason the government has provided some student loan relief. If you’re in this position, use this time to focus on rebounding. Seek employment, preserve your savings, and only spend money on essentials.

As of now, we can anticipate student loans will resume normal activity at the start of 2021. If you’re really unsure of your future income, you may want to seek a new repayment plan. Income-driven repayment plans exist, and they allow individuals with lower income to pay less each month. You may also want to consider consolidating all of your students loans. This converts the loans into one loan with a singular interest rate. It may also prolong the repayment process, but give you lower monthly payments in the process. This process has other implications, so be aware that some of the flexibility of your federal loans may be compromised if you choose to consolidate.

If You Have Private Student Loans

Let’s face it: school is super expensive. So expensive that federal loans barely make a dent in the overall cost. This leaves students with the option to take out private student loans. Despite all of the craziness associated with COVID-19, Sallie Mae is still putting in work.

Some people are lucky enough to live in states where some private loan relief has has been extended to borrowers. This put the loan into forbearance for 90 days, stopped collections, and waived late payments fees. What it didn’t do: stop interest from accruing.

Private students loans tend to have fewer regulations, and quite frankly, impose greater challenges for young adults. There still are a couple of options if you’re really concerned with your inability to pay. You could consider refinancing these loans, but that may only be temporarily beneficial. Your new loan could be temporarily deferred, but you’re likely not in a position to reap the benefits of refinancing.

For the most part, the best first step would be to contact your lender. Most private loans offer some type of emergency relief. You can likely benefit during COVID-19, which may temporarily put the loans into forbearance. However, you’re unlikely to have interest suspended. While you’re not making payments, you’re collecting interest. So, this option should only be explored if absolutely necessary.

If You Have Private Student Loans and Income

In this scenario, you may want to seriously consider refinancing your student loans. In this process, you pay off your existing loans with a new loan. Then, you agree to the terms of the new loan.

Whether or not you should refinance depends on two variables: how much you owe in private loans and your personal finances. If you don’t have a whole lot left to repay on your private loans, it might not be worth forgoing the benefits of federal loans in the refinancing process.

If you have a good amount of private loan debt, consistent income, and good credit history, you could benefit greatly from the refinancing process. Your interest rate could lower, meaning you’ll be able to repay loans quicker and pay less overall. Of course, the best rates go to the people with the best income and highest credit scores. If you feel you could be one of those people, compare refinancing plans. The interest rates available on refinanced loans tend to fluctuate, but right now they’re really low.

Handling Student Loan Debt During COVID-19

Regardless of your situation, you are in a position to benefit from student loan relief efforts. At the very least, you do not need to worry about payments and interest on your federal loans for the remainder of 2020. Private loans are another story, but at the very least, there are strategies to defer payments if they’re impossible to make.

People who have maintained their income are in the best position during this pandemic. They can certainly benefit on their federal student loans by continuing to make payments. With no interest accruing, this will reduce the overall amount they’ll need to repay due to their loan debt. Even if they have a mountain of private loan debt, the refinancing process can seriously reduce the interest you pay.

This pandemic has given us many uncertainties. If you’re able to find some way to benefit, explore those options. You may never get another opportunity to address student loans with this much flexibility. Make every possible effort to find some student loan relief in this process. Not only will repaying loans lower your debt, it will lower the amount of interest you accrue, moving you closer to debt freedom.

Originally published at on September 7, 2020.

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